The Trade Agreements Act (TAA) (along with its cousin, the Buy American Act) is one of the more complex acts to deal with in federal government contracting. We have taken a look at the TAA before, noting that it does not apply to small business set-asides and discussing how it applies in its related FAR clause, FAR 52.225-5. One of the key requirements under the TAA, as shown in FAR 52.225-5, is that the product has been “substantially transformed…into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was transformed” in one of the qualifying countries: the United States, various “qualifying countries”, and “designated countries”. (These countries are ones that the US has a trade agreement with, hence the law’s name) Of course, when agencies receive offers, they generally can’t go visit the assembly sites. This raises the question: When can an agency rely on a contractor’s offer and when must it do a little more digging?
In HPI Federal, LLC (B-422583), GAO took a look at this very question. The Air Force was seeking tech products under a GSA Federal Supply Schedule. One of the products in question was a set of large monitors, and the other product relevant to this protest was docking stations for office notebook laptops. The solicitation required that vendors confirm that their products were TAA-compliant. The awardee for these two products was a company called Transource.
With regards to the monitors, Transource said they were assembled in Mexico, which is a TAA-compliant country (being a “designated country”). As proof of this, Transource included a letter from LG, the company that made the monitors, that described itself as a “Country of Assembly Certification.” For the docking stations, Transource simply identified another country (GAO redacted its identity curiously) as the country of origin. When Transource won, HPI Federal protested. In its protest, HPI Federal stated that the agency unreasonably determined that Transource’s quotation was TAA-compliant for these items.
The Monitors
With regards to the monitors, HPI Federal noted a 2023 letter from LG suggesting they weren’t compliant. Transource shot back that it had a more recent letter from LG stating the monitors were assembled in Mexico. Here’s where things got interesting: HPI Federal argued that this later letter only certified that the monitors were assembled in Mexico, not that they were an end product of Mexico. GAO agreed!
At first glance, this may seem odd, but it’s important to note that what matters is what the courts and GAO have called “substantial transformation,” not mere assembly. As GAO observed, “a product is not necessarily an end product of the country in which it was assembled, as assembly alone may not constitute substantial transformation.” How can this be? GAO explained further:
In determining whether the combining of parts or materials constitutes a substantial transformation, the issue is the extent of operations performed and whether the parts lose their identity and become an integral part of the new article. Assembly operations which are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation. The issue of whether a substantial transformation occurs is determined on a case-by-case basis.
To put it more simply: Assembly can sometimes be substantial transformation, sure, but if the assembly is basically just snapping two parts together that were themselves quite complex to put together, well, that’s not really “substantial transformation.” The case doesn’t go into detail on what this could mean, but imagine for a moment that the monitor would arrive for “final assembly” and final assembly just meant putting on a final protective screen. The monitor works fine when it arrives for final assembly. You can’t really say the parts lost their identity and became an integral part of the new item just knowing it was “assembled” somewhere, you need more information. So, the fact that Transource provided a certification that the monitors were just “assembled” in Mexico wasn’t enough.
The Docking Stations
Now, this was an unusual GAO case where part of the award could remain with Transource, and that’s exactly what happened. Here, however, Transource’s quotation provided even less information: It didn’t say the docking station was assembled in the given country. It just “provided a confirmation that its docking stations are TAA-compliant.” So how did GAO side with Transource here and not on the monitors? Essentially, it’s a case where providing less information actually was helpful.
GAO noted:
[T]here was nothing on the face of Transource’s quotation to reasonably indicate that Transource would not deliver TAA-compliant docking stations… As discussed above, however, Transource’s representation regarding the docking station was materially different than that for the monitors. Transource expressly represented that the docking station’s country of origin is [DELETED], not simply that the docking station is assembled in [DELETED].
In other words, the question is basically “Is there anything in the proposal that suggests the product is non-compliant?” Concerning the monitors, the fact Transource said they were assembled in Mexico rather than just that Mexico was the country of origin is what lost them that award. GAO’s holding is that agencies are to take offerors at their word on TAA compliance unless something they provide suggests they shouldn’t. Had Transource simply stated the monitors were from Mexico without any further detail, that would have worked.
Summary
It’s a curious decision to be sure. But the takeaway here seems to be that, when it comes to TAA compliance, providing less information actually is better. Normally, contractors want to provide agencies as much detail as possible in a proposal. But when it comes to stating products are compliant with the TAA, it seems that contractors should keep it simple and only state that the product’s country of origin is the country in question (assuming this is true, of course). No need to delve further.
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